NYT editorial: “whistling past the deficit”

This is the Times editorial page on the NY State deficit. Note how fiscally conservative they are when discussing this issue.

New York’s governor could not have spoken more plainly than he did last week before a joint session of the State Legislature. “Quite frankly, we are running out of money,” he said, as he asked members to help cut the budget. The plea has so far gone unanswered, even though, with each week, the fiscal problems get worse….

Gov. David Paterson has had a few awkward moments recently, but the fact that he’s taking a hard stand on balancing the state’s budget shows real leadership. If he sticks to his guns, he will have earned my vote next year.

Unfortunately, the Democrats running the State Senate seem to think things are not as bad as the governor makes out, and have advanced a plan that is politically palatable but also ludicrous. They would drain rainy-day funds and any other untapped pool of savings to pay the bills until March of next year.

That’s like cleaning out your 401(k) to pay the rent. And it leaves open the question of how the state would really manage once the savings were spent. Senators also want to refinance and extend loans on the tobacco settlement money, a scheme that does two things well — it helps the bond merchants of Wall Street and it forces future taxpayers to pay for today’s expenses.

It is time for the Legislature to face facts. New York spends twice the national average on Medicaid at $2,283 per person. That is the highest average in the country, with Rhode Island a distant second at $1,659. Mr. Paterson wants to scale back the health care budget by $471 million. That seems the least the state should do. Education is even more costly. The national average per student is $9,138; New York spends $14,884. Mr. Paterson’s plan to cut education costs by about 3 percent, or $686 million, is clearly in line with what’s necessary.

Budget issues have to be dealt with decisively. The sooner the better. As the foregoing paragraph emphasizes, the problem here in NY isn’t too-low taxes, it’s too-high spending.

This is equally true at the national level. Many have convinced themselves that the federal government’s ability to borrow money in a currency that it can print removes budget “constraints.” Mechanically, this may be true. But if we follow their prescription — borrowing and printing so long as there’s “an output gap” — latent inflation stored up in dollar-denominated assets overseas could go kinetic rather quickly.